For loss-making companies, 2017-18 was the worst year in a decade

344 companies reported a combined net loss of Rs 1.8 trillion, more than twice that in 2016-17

Even as 1,794 companies reported a combined net profit of Rs 4.42 trillion in financial year 2017-18, India Inc’s performance was pulled down by loss-making companies. In FY18, 344 companies reported a combined loss of Rs 1.8 trillion – more than double the number in FY17, and the highest in at least a decade. 

Loss-making companies have now cumulatively lost Rs 4.85 trillion in the past five years, and 76 per cent of that has come in the past three years.

And, contrary to general perception, not all of these losses are due to the bad loans accumulated by public-sector banks and other corporate lenders. Together, listed banks accounted for less than half of all corporate losses in FY18 (Rs 850 billion). 

The combined loss of non-bank companies was up nearly 50 per cent in FY18 to Rs 946 billion from Rs 650 billion a year earlier. (See chart)

Loss-making companies accounted for 14 per cent of the combined revenues of listed companies in our sample, 17 per cent of all corporate salaries and wages, and half the sample companies’ interest payments in FY18, raising risks for the banking sector and the economy. The analysis is based on 10-year annual financials of 1,794 listed companies across sectors. It excludes companies with annual revenues of less than Rs 0.25 billion in FY18. The sample has also been adjusted for listed subsidiaries of listed holding and group flagship companies.

All the companies in our sample reported a combined net profit of Rs 4.42 trillion in FY18, down 5 per cent from Rs 4.56 billion a year earlier. If loss-making companies were excluded, India Inc’s net profit would grow 40 per cent year-on-year in FY18. Corporate India’s combined net profit has declined in three of the past four years.

Some of the prominent companies that reported large losses in FY18 include Reliance Communications (Rs 239 billion), Tata Tele Maharashtra (Rs 98.4 billion), Punjab National Bank (Rs 121.3 crore), IDBI Bank (Rs 81.3 billion) and Idea Cellular (Rs 41.7 billion).

It must be mentioned that many of the insolvency candidates, such as Videocon Industries (loss of Rs 27.1 billion in FY17), Bhushan Steel (Rs 36.2 billion loss in FY17) and Alok Industries (Rs 30.8 billion loss in FY17) are yet to declare their financial results for FY18.

According to analysts, this was the worst period for earnings growth in decades. They hint at the growth challenges facing corporates, especially those in the capital-intensive, investment- and foreign trade-related sectors.

They blame it on persistent poor demand growth since the global financial crisis and spread of corporate stress to new sectors like telecom. "Corporate earnings never fully recovered from the demand shock of the 2008 Lehman Crisis. In recent years, this got accentuated by the economic disruption caused by demonetisation in late 2016 and the rollout of the goods and services tax last year," says Dhananjay Sinha, head of research, Emkay Global Financial Services.

Corporate India has also been hit by a sharp contraction in India's foreign trade since 2008. "Foreign trade contribution to India's GDP declined from around 56 per cent in FY12 to 40 per cent now, reversing the trend of a steady rise in trade-to-GDP ratio from 1991 onwards," adds Sinha. 

The result has been a sharp slowdown in volume growth and profitability in trade-related sectors like metals, pharmaceuticals, textiles, garments, gems & jewellery, shipping, and chemicals. Things have worsened with the spread of trade protectionist measures adopted by large importers, such as the US recently. At its peak in FY14, exports accounted for 25.4 per cent of India’s gross domestic product; that is down to 19.1 per cent now.  

G Chokkalingam, founder & MD, Equinomics Research & Advisory Services, says: “The price war triggered by Reliance Jio has made most of the telecom operators financially unviable, with the exception of the top one or two players. As a result, most incumbent operators are now making losses.” Four listed telcos – RCom, Tata Tele (Maharashtra), Idea Cellular and Mahanagar Telephone Nigam – lost over Rs 400 billion at the net level.